U.S. Beef Industry Growth Will Help Rural & Overall U.S. Economies

Sun, 2011-05-01 08:00

Did you know Australia’s largest cattle producer now owns more than 640,000 cattle and has properties spread over 18 million acres? I’ve always been awed by the scale of Australian cattle operations but the latest expansion by the Australian Agricultural Co. (AAC) is breathtaking. AAC reached its new size in March when it bought another operation and its 53,000 cattle for $27 million (USD).

Why buy one of the country’s largest cattle herds just when cattle prices are at record highs? AAC CEO David Farley’s response was enlightening. Cattle prices in Australia have further to go this year, as do global beef prices, he told Dow Jones. In other words, AAC is positioning itself to take advantage of even higher prices this year due to a decline in global cattle numbers and a continued improvement in global beef demand.

Australia and Brazil are the only two major beef-producing countries where cattle numbers are expanding. One can’t help think about what the U.S. industry will miss out on in the years ahead if its cattle numbers don’t increase.

Given that U.S. prices for all cattle have repeatedly set record highs this year, one could make the argument that producers here won’t “miss out” on anything. But that’s a shortsighted view of the future. Rural communities from coast to coast, and the overall U.S. economy, depend on the beef industry to grow not shrink.

Growth is also vital because it will provide opportunities for a new generation to enter the industry and offer new ideas and perspectives. Watching my three children (aged 22 to 32), I know their generation is more willing to “think out of the box” and take on more risk than people my age. Young producers are likely to be thorough and innovative in their approach to issues. The industry will need their ideas and energy to take full advantage of the bullish global outlook for beef.

The U.S. has some large cow-calf operations but they seem puny compared to those in Australia. Whereas the average herd size Down Under is nearly 400 head, the U.S. average is eight times less than that. Economies of size in cow-calf production suggest that farms have an incentive to become larger, says USDA’s Economic Research Service in a new study. But, as it notes, the significant land area required for large-scale cow-calf production inhibits many producers from expanding. In most areas of the U.S., beef cow-calf production is the residual user of land, USDA says.

The study highlights an important aspect of cow-calf production that is both the industry’s strength and its greatest weakness – the small average size of operations. Nearly 765,000 farms, about 35% of the 2.2 million farms in the U.S., had a beef cow inventory in 2007, says USDA. Most of these were small, part-time operations.

About a third of farms that raise beef animals had a beef cow inventory of less than 10 cows, more than half had fewer than 20 cows, and nearly 80% had fewer than 50 cows. Contrast this with four major packers who processed 86.5% of all fed cattle in 2009 and you realize that the industry is structured like a very wide funnel.

The small size and diversity of the cow-calf base creates market inefficiencies, problems with beef quality and challenges to industry unity over issues like the beef checkoff, a national ID system and the proposed GIPSA rule. But the structure won’t change anytime soon.

So the industry will continue to depend on the small number of larger commercial operators who produce the vast majority of calves. I sure hope they expand their operations to take advantage of the growing global demand for beef. The future of the industry is in a few good hands.